Advance Tax: How to Pay |Due Dates and more…

Budget 2016 proposed many changes related to tax laws. It also impacts the payment schedule of advance tax. This post explains the concept of Advance Tax, the new rules and answers the following questions:

Who needs to Pay Advance tax?

How to Calculate?

How to pay Advance Tax?

Deadline to Pay Advance Tax?

Whats the Penalty for Non-Payment?

What is Advance Tax?

Advance Tax Payment – New Rules in Budget 2016

We all know that we need to pay income tax in case the total income for the financial year exceeds the income tax exemption limit. But the government wants you to pay taxes as you earn rather than paying it all at the end of the financial year. This helps government to keep running for the entire year.

In case your tax liability is more than Rs 10,000 for the financial year, you need to pay Advance Tax as per below schedule (revised in Budget 2016):

15% of total tax by June 16

45% of total tax by September 16

75% of total tax by December 16 and

100% of total tax by March 17

Before this revision advance tax was paid in 3 installments in September, December and March.

Who Needs to Pay Advance Tax?

Advance tax needs to be paid by everyone whose tax liability exceeds Rs 10,000 for the financial year. However Senior citizens with age of more than 60 years who do not have income from business/profession, need not submit advance tax.

Professionals such as doctors, lawyers, architects with annual revenue of Rs 50 lakh or less and who plan to take advantage of newly introduced Presumptive scheme in Budget 2016 can pay advance tax at one go on or before March 15.

Calculating Advance Tax:

You can use the Income Tax Calculator to know your Tax liability for the financial year. Next you need to pay the relevant percentage of tax by respective due dates.

The advance to be paid would be net of TDS (Tax Deduction at Source) deducted on your behalf. Let us understand this by example.

Assume that Amit needs to pay total tax of Rs 1 Lakh for this financial year. Also some of his income is from fixed deposits with bank. The bank while paying interest deducts TDS (Tax Deduction at Source) at 10% of the interest and submits it to income tax department.

Amit’s advance tax installment for June would be Rs 15,000 (15% of Rs 1 Lakh) but the bank has already deducted TDS of Rs 10,000. Amit should pay advance tax net of TDS. So he needs to pay Rs 5,000 (15,000 – 10,000) as the advance tax installment for September.

Advance Tax Details by Income Tax Department (Click to enlarge)

Advance Tax for Salaried Tax Payers:

Most of salaried tax payers are not aware about Advance tax concept mainly because it’s taken care by their employers. If you check your Form 26AS, you can see that your employer has deducted tax every month from your salary and paid to the I-T Department. This is the advance tax deposited by your employer on your behalf.

Advance Tax for Salaried Tax Payers – Form 26AS

But there is a catch, in case you are salaried and also have income from other sources like fixed deposits, side business etc – you must calculate your tax liability and pay advance tax accordingly. For e.g. you are in 30% tax bracket and are expecting Rs 1 lakh as interest income over the financial year. You will need to pay advance tax as required.

Situations where Salaried tax Payers should pay Advance Tax:

Have changed company and not declared the previous income to the new company. In this case the new company calculates and deposits lower tax than required.

Have income from rental income (not declared to employer), fixed deposits, business or other sources

Easy way out?

There is an easy way out. You can declare the income from other source up front while you make your investment declaration in April to your employer. They would calculate the tax accordingly and deposit the advance tax on your behalf.

How to Pay Advance Tax?

The Advance tax can be paid both online or offline. For offline you need to fill Challan 280 and deposit the money along with the Challan to the approved bank branches.

You can deposit this amount with the final tax installment. So instead of Rs 1 lakh you need to pay additional Rs 4,050 as penalty for not paying advance tax on time. The tax liability has increased by 4%!

What if the Estimated Income Changes after First Installment?

It may so happen that the estimated income for the financial year changed after you paid the first installment in June. The income may increase or decrease. You can adjust the same in the next installment to be paid in September, which has to be 45% of the new tax liability (in sync with the changed income).

To Conclude:

You should calculate your Tax liability for the year and check if you have complied with the Advance Tax installments. In case you do not do so you need to pay penalty of 1% per month for every month of delay which can increase total tax liability by up to 4% (as in the example above). Salaried tax payers should also keep watch on income from other sources and comply with Advance tax payment.

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